Employers often provide cars to their staff, especially if the job requires a lot of travelling. However, the taxation system regarding company cars has gone through some changes, which can make it less appealing for both the employer and the employee. Therefore, let’s look at the tax rules for company cars and determine if electric cars have a more beneficial outcome than petrol or diesel vehicles.
When it comes to HMRC’s view on company cars, the answer is based on the use of the car. If the vehicle is employed for personal use, like a shopping trip or bringing the kids to school, then it’s considered a tax relief on electric cars. This then has repercussions for both the company and the individual.
It is mandatory to submit a P11D before the 6th of July, which is the deadline after the conclusion of the taxation period that it pertains to.
The fiscal year starts from the 6th of April and ends on the 5th of April of the following year, regardless of when the company’s year-end date is.
What amount of taxation will I be required to pay for a corporate automobile?
To begin with, in order to determine the amount of tax to be paid for a company car, you have to calculate its P11D value (which will be elucidated in the following section). You will then multiply this value by the rate of income tax that you are liable for, based on your income, and then by the BiK rate of the car which is based on its emissions.
The emissions factor is especially important for comprehending why electric cars are more tax-advantageous than cars that run on petrol or diesel.
What is the method for determining the P11D cost of an automobile?
Figuring out the P11D worth of a business vehicle necessitates taking into consideration its list price, the number of days it was accessible, capital contributions, and its engine size, fuel type, and CO2 discharges (which is where the electric car is distinguished). It may be perplexing, so we clarify what each of these expressions imply below and include some illustrations of calculating everything.
What does list price mean in a P11D calculation?
The basis for the P11D assessment for a work-related vehicle is its retail price. This cost is the amount that the car cost when it was given to the staff member and includes any additional features or accessories, along with VAT.
How many days was the car available?
You have to take into account the length of time the vehicle was available for use during the current tax year. Remember that the amount of money you pay is determined by the number of days the car was usable.
Employee capital contributions for company cars
Employees can make up to £5,000 of ‘capital contributions’, which are payments towards the cost of the vehicle and any accessories. These capital contributions are deductible for tax purposes. Basically, the more the employee pays personally, the lower the value of the benefit, which means less tax to pay.
Similarly, in some cases, an employer might agree that an employee may contribute towards the costs of the private use of their car. Any such value must be agreed in advance of the employee using the car and, for example, can’t simply be an estimate of the petrol and oil they’ve used.
Engine size, fuel type, and CO2 emissions
The size of the engine, the fuel type, and the carbon dioxide (CO2) emissions of the car must all be taken into consideration, and this is where the tax advantages of an electric vehicle come into play.
The CO2 amount that matters for the car is the one from its first registration. This figure will remain the same for the life of the car, no matter what the results of the MOT test indicate.
This may sound complicated, and it is! Fortunately, the government offers a convenient calculator tool. We will explain how this data comes together in the following section.
Limited Company Accounting Services
What advantages can a limited company experience from operating electric vehicles?
The government has taken steps to encourage organizations to switch from traditional petrol and diesel vehicles to more environmentally friendly ones by offering a more attractive tax rate on electric vehicles. As of the current tax year, this rate is 2%, and it will remain at this level until the 2024/25 tax year.
It is important to note that hybrids are taxed like petrol cars after taking into account the electric range of the vehicle. Here are some of the rates and some practical examples to illustrate them.
2023/24 Company car tax rates
These tables are being provided to illustrate some of the percentages in effect for the 2023/24 fiscal year, to demonstrate how to compute the tax for a business vehicle. A comprehensive compilation is accessible on the HMRC webpage.
Electric and hybrid vehicle rates
|
Engine Type
|
CO2 Emissions (g/km)
|
Electric Mileage Range (miles)
|
Percentage Multiplier
|
Electric
|
-
|
-
|
2%
|
|---|---|---|---|
|
Hybrid
|
1 - 50
|
130 and above
|
2%
|
|
Hybrid
|
1 - 50
|
70 - 129
|
5%
|
|
Hybrid
|
1 - 50
|
40 - 69
|
8%
|
|
Hybrid
|
1 - 50
|
30 - 39
|
12%
|
|
Hybrid
|
1 - 50
|
Less than 30
|
14%
|
Petrol vehicle rates
These tables are being provided to illustrate some of the percentages in effect for the 2023/24 fiscal year, to demonstrate how to compute the tax for a business vehicle. A comprehensive compilation is accessible on the HMRC webpage.
|
Engyne Type
|
CO2 Emissions (g/km)
|
Electric Mileage Range (miles)
|
Percentage Multiplier
|
Petrol
|
100 - 104
|
-
|
25%
|
|---|---|---|---|
|
Petrol
|
105 - 109
|
-
|
26%
|
|
Petrol
|
110 - 114
|
-
|
27%
|
|
Petrol
|
115 - 119
|
-
|
28%
|
|
Petrol
|
120 - 124
|
-
|
29%
|
Evidently, electric cars and fuel-saving hybrids that produce almost no pollutants have a major sway on the Benefit-in-Kind rate.
What is the process for calculating tax and NI for company vehicles for both the employer and employee?
To gain an understanding of how the tax is applied to different CO2 emissions, let’s analyze the examples of petrol, hybrid, and fully electric vehicles.
It needs to be noted that the tax does not only apply to employees but also to employers who give their employees a company car for personal use.
The following table will help you calculate the cost of the contributions and consequently, what it could mean for your business, especially if you are the director of a company.
|
|
Petrol
|
Hybrid
|
Fully Electric
|
Example vehicle
|
Volkswagen Golf 1.5
|
Volkswagen 1.4 TSI eHybrid
|
Mini Hatchback Electric 135kW
|
|---|---|---|---|
|
List price
|
£28,685
|
£37,655
|
£30,600
|
|
Electric mileage range
|
-
|
45 miles
|
160 miles
|
|
CO2 emissions
|
122 g/km
|
25 g/km
|
-
|
|
The tax percentage rate based on emissions
|
29%
|
14%
|
2%
|
|
The P11D value
|
£28,685 X 29% = £8,318.65
|
£37,655 X 14% = £5,271.70
|
£30,600 X 2% = £612
|
|
How much tax the employee pays?
|
£8,318.65 X 40% = £3,327.46
|
£5,271.70 X 40% = £2,2108.68
|
£612 X 40% = £244.80
|
This case illustrates that a car operated by a gasoline company is not very cost-effective from a taxation perspective, however, an electric car might be much easier to manage.
Are there any additional benefits to supplying electric automobiles to a company?
It is obvious that there are great fiscal benefits to changing your firm’s car fleet to electric cars, but there are some other perks of doing so as well.
Fuel charges
Electrical power does not fall under the category of ‘fuel’ like gasoline and diesel do. Therefore, there is no obligation to provide any kind of fuel benefits to workers and, therefore, the employer does not have to pay Class 1A NI charge.
Capital Allowances
Businesses can get tax deductions on the possessions they acquire, which minimizes the amount of Corporation Tax they must pay. If they purchase an all-electric vehicle, they can claim a full deduction in the first year. This allowance is not applicable to both leased and hybrid cars.
Mileage allowances
The amount of compensation given for mileage is determined by the kind and size of vehicle employed. While cars powered by petrol or diesel usually receive the higher Advisory Fuel Rate, those that use electricity receive 8 pence for every mile driven. As an example, an individual who drives 5,000 miles for business purposes in a fully electric company car can make a claim for £400, which is tax and NI Contributions free.
What are the possibilities for setting up charging stations?
To stimulate the use of electric vehicles, the government enables companies to build charging stations without regarding it as a Benefit-in-Kind. Consequently, personnel can fill up their cars for free at their workplace.
When personnel work from home or away from the firm’s main site, employers can pay for the installation of a charging station in their residence. This will not be deemed as a Benefit-in-Kind and no extra cost is involved above the price for installing the station.
Nevertheless, this tax concession does not hold if the enterprise covers the cost of the employee’s car being charged away from the work premises, such as at a motorway service station.
What methods should businesses use to keep track of the expenses related to electric-powered vehicles?
Generally speaking, the procedure for providing a vehicle is the same. If the car is purchased through a hire purchase agreement, the total amount of the loan should be listed on the balance sheet and will decrease as payments are made. The interest from the payments should be accounted for as an expense on the profit and loss account.
If the car is leased and there is no option to purchase it, the car will not belong to the company. Instead, the corporation tax payable would be reduced in lieu of the allowances mentioned previously.
What are the implications of the Value Added Tax?
The government does not differentiate between electric and other types of vehicles when it comes to Value Added Tax (VAT). Therefore, it is impossible to get a reimbursement of VAT for buying a car, no matter if it runs on petrol or electricity. Nevertheless, it is possible to reclaim the VAT if the vehicle is solely used for business activities. To do so, it must not be taken home at night. For instance, if the car is left at the workplace during the evening, it is regarded as 100% used for business purposes. Nevertheless, it can be tricky to demonstrate this to HM Revenue & Customs (HMRC).
Obtaining financial support for the acquisition of electric automobiles
It’s great news that you can take advantage of a reduction in the cost of brand new low-emission vehicles. The Office for Zero Emission Vehicles (OZEV) is a part of the government that offers financial assistance for electric vehicles.
This grant is given through a discount from car dealers and producers, making the application process straightforward. The dealer will simply incorporate it into the cost of the car.
Be aware that only vehicles that the government approves are applicable for a grant. The car must not exceed £35,000, which includes VAT and delivery fees. The grant is then calculated at 35% of this amount, up to a maximum of £2,500.